Value Creation Rating (VCr):
Does this firm create more value than it extracts?

The VCr expresses the proportion of all value creation relative to all value appropriated (revenue). Founded on the principles of double materiality, it provides signals on a company's long-term financial prospects and its impact on society, the environment, and all of its stakeholders.

Value creation is the sum of all first-order productive activities. It is comprised of Net Value Creation (‘value created and appropriated’, as included in the P&L statement) and inclusive value transfer-OUT (value created by the firm that benefits stakeholders but is not monetized in the P&L statement). Risk origination is an essential element in value creation.

The advancement of Knightian uncertainty through which genuinely new value is brought into existence. Each VCr scorecard carries the tagline Revolutionizing Risk by Weighting Value. Risk management simply preserves existing value, while undertaking uncertainty and originating risk creates new value. Risk transfers, socializing losses, or benefiting from not having ‘skin in the game’ is a form of value extraction.

Value extraction is comprised of second-order value transfers and operationalized as transfer-IN. A firm uses its asymmetrical bargaining power differentials accumulated across the market, non-market, and narrative arenas, to appropriate value generated by its stakeholders without providing the quid pro quo of productive output.

Examples include the suppression of wages, monopoly pricing, tax breaks or unpriced carbon emissions.

VCr = [revenue − transfer-IN(revenue) + transfer-OUT(revenue)] / revenue

A firm’s revenue is readily available from its standard financial statements. Transfer-IN and transfer-OUT amounts are then quantified to establish the value flowing between the firm and its stakeholders in both directions, through the bottom-up aggregation of calibrated SVC Metrics across the firm’s complete operational footprint.

The critical balancing point is a VCr score of 1.00. At 1.00, inclusive transfer-OUT exactly offsets extractive transfer-IN; above 1.00, the score is deemed to be ‘generative’ as total value creation exceeds value appropriated (revenue); below 1.00 it is deemed to be ‘extractive’ as the business model appropriates more value than it creates.

Firms, organizations, or elite business models with a Generative score (VCr > 1.00) create more value for their stakeholders than they appropriate as revenue, directly advancing economic and human development.

The VCr scale places a firm in one of nine rating Classes, comparable in form to the long-term credit-rating scales of Moody's, S&P and Fitch. V1–V4 constitute the 'Generative' category, while X1–X3 and Z1–Z2 constitute the 'Extractive' category.

The VCr quantifies value creation through transfer-OUT SVC Metrics that capture revenue-equivalent ‘value created but not appropriated’. By linking granular operational data to revenue, the VCr framework measures the value flowing from the firm principal to its many stakeholders, transforming sustainability from a qualitative concept into calibrated, revenue-equivalent figures.

The VCr quantifies extraction through transfer-IN SVC Metrics that capture revenue-equivalent ‘value appropriated but not created’. By converting operational, social, financial, political, and environmental extraction indicators into calibrated financial equivalents, the VCr framework looks beyond what statutory accounting aims to achieve to measure how much of a firm’s revenue depends on extractive transfers from stakeholders rather than on value creation.

‘Revolutionizing Risk by Weighting Value’. Our key ambition for the VCr is to equip managers, investors, and policymakers with an innovative toolset to analyze risk origination and weigh all of the value that is created from it. The result is a novel framework that provides firms and institutions with a new understanding of sustainability and enables them to pursue transformational leadership.

The VCr reflects the distinction made in the Elite Theory of Economic Development (ETED) between first-order productive activities, which grow the overall economic pie, and second-order transfer activities, which redistribute value already created to grow the economic slice of the extracting entity. The four Rating Areas map each SVC Metric to the political economy, directly linking the value flows of a business model to a broad set of societal implications.

While the VCr measures sustainable value creation at the micro-level of the firm, the Elite Quality Index (EQx) aggregates these and other leading business models at the meso-level, providing a framework to predict macro-level outcomes such as economic growth and human development.